that the sales during the year 1914 will be equal only to double the gas delivered during the first half of the year 1913, the total sales during the year 1914 will be 18,274,600 cubic feet. Taking into consideration the fact that the sales during the first half of 1913 did not show the normal increase, the basis used will give a very conservative estimate of the probable amount of gas which will be sold during 1914.

The present rates of the Ontario-Upland Gas Company as filed with this Commission on May 16, 1912, and which apply uniformly to all territory served by defendant including the city of Ontario, are as follows:

One dollar and seventy-five cents per thousand cubic feet, subject to a discount of twenty-five cents per thousand cubic feet if bills are paid on or before the fifteenth of the month in which the said bill is rendered.

All bills for 5,000 cubic feet and over of gas consumed during any one month are subject to the following discounts:

The book value of the physical plant of the Ontario-Upland Gas Company, as shown by the company's book, is as follows:

The Commission's engineering department has made the following estimate of the cost to reproduce and the present value of the plant and system of defendant company:

The earnings of defendant company for the year 1912 and the first nine months of 1913 were as follows:

The sale of gas for the first nine months of 1912 was $17,962.75, showing an increase for the same period during 1913 of $946.82 or 5.3 per cent. This increase is less than normal.

The operating expenses of defendant company for the year 1912 as shown by the books amounted to $12,460.27, exclusive of taxes. For the first six months of 1913 the corresponding amount was $7,768.53, corresponding to an increase of 19.7 per cent over 1912. Per thousand feet of gas sold the expense amounted to $0.7328 in 1912 and $0.8503

in 1913.

This difference in operating expense can not be attributed to the increased business, since it is greater by 12 cents per thousand cubic feet sold. After careful analysis of each item of expense in toto and

on a unit basis, it appears that a portion is accounted for by certain repairs to plant which will not normally recur annually. Accordingly, they have been distributed over the proper interval.

In ascertaining operating expenses for the future, the mean per unit consumption of 1912 and 1913 has been adopted as a more reasonable and stable basis. A direct analytical comparison of each expense between 1912 and 1913 is not possible due to the altered system of accounting inaugurated in 1913. The unit expense so obtained has been adjusted to include an increase in salary of the secretary of $15.00 per month.

This operating expense does not include taxes, which are on a gross revenue basis, as follows:

Disregarding the fixed charges on the investment and which we will assume to cover merely interest and an allowance for depreciation, and segregating to the supply and appliance business of defendant $371.32, corresponding to double the business promotion expense for the first six months of 1913, we find that the entire operating cost of gas to be supplied during 1914 on the basis hereinbefore assumed, not including state or municipal franchise taxes, will be 77.55 cents per thousand cubic feet.

The amount provided for depreciation by defendant company is evidently excessive and is arrived at merely by taking 7 per cent of the book value of the physical property, after deducting accounts subject to appreciation and those adjusted from inventory. I am persuaded from the evidence that this allowance should not exceed 3 per cent of the value of the entire physical property.

After a careful consideration of all the facts and circumstances surrounding this case, I am of the opinion that a uniform rate of $1.25 per thousand cubic feet should be established by this Commission for all gas sold by the Ontario-Upland Gas Company in the city of Ontario. This rate will be sufficient to provide, on a very liberal basis, for all operating expenses, in addition to allowing 3 per cent for depreciation and 8 per cent interest on the book value of the physical property, as contended for by the defendant, or a total allowance for interest and depreciation of over 11.7 per cent on the reproduction value of operative physical property as estimated by the Commission's engineering department. While this is undoubtedly liberal, I believe that under all the circumstances such liberality is justified.

At the preliminary hearing in this case defendant requested that the Commission consider the advisability of a minimum monthly charge in fixing a rate based on its readiness to serve. The city does not object to the establishment of such a minimum. The Commission has in the past explained its attitude in regard to a minimum for this class of service, and finds that a minimum charge of 50 cents per meter is justified in this case.

The effect of

The effect of such a minimum charge on the 1913 business of the company is to increase the revenue $470.00 per annum. such additional income has been considered in fixing the rate.

The service of this company covers the city of Ontario, complainant, and the adjoining municipality of Upland, which is not involved in this action. No unincorporated territory is served. Accordingly, it is nece sary to determine some method of apportioning the capital and operating expense to each district. Consumption has been selected as the proper basis in this case. Such segregation is automatically obtained if a full cost rate is calculated per unit of gas sold.

Although the order in this case is not applicable to Upland, nevertheless it would be unjust to the utility to consider the effect on income of a higher rate in a locality not subject to our control.

In reaching a conclusion in this case I have taken into consideration. the fact that no very substantial difference of opinion exists between the engineers of this Commission and the engineer of the company as to matters of valuation, but it should be understood that in subsequent investigations on this company whatever modifications of the book cost which may be found necessary will be made.

I have fixed the minimum charge of 50 cents, which is somewhat lower than the one ordinarily in effect, because there has heretofore been no minimum charge, and it is my opinion that changes from one system of rates to another should be gradual so long as justice is done to all parties.

I likewise have not taken into consideration the fact that this territory is increasing in population, and that the amount of gas to be served should increase and probably the cost per unit decrease in the future. While it is not the design of this Commission to deny to utilities a liberal return upon the proper investment, yet as the cost of performing this service shall decrease in the future subsequent adjustments of the rates should be made. For the present, however, I believe that the minimum monthly charge of 50 cents, together with the rate fixed, is just and reasonable. This minimum charge should apply to all meters, including the so-called prepay meters which are in use in Ontario.

Since the foregoing opinion was dictated, the attorney for the company, defendant herein, has called to this Commission's attention the fact that the gas holders in use in the city of Oakdale with which Mr. Kelley, engineer for this Commission, compared the Ontario plant, are of a different construction, being of thinner iron and costing from $1,500.00 to $2,000.00 less than the holders at Ontario. Under the disposition that has been made of this case, however, it becomes unnecessary to consider this matter further because I believe when the necessary additions are required to this company's plant that they should be made and that if such additions require an adjustment of rates such may be done hereafter.

I submit the following order:

ORDER.

The city of Ontario having filed with this Commission its complaint. against the Ontario-Upland Gas Company alleging that said company's existing rates for aritficial gas are unjust and unreasonable and requesting this Commission to establish rates which shall be just and reasonable, and a hearing having been held, and being fully apprised in the premises, the Commission hereby finds as a fact that the existing rates charged and collected in the city of Ontario by the defendant herein, are unjust and unreasonable, and that a just and reasonable. rate for gas to be charged and collected in the city of Ontario by the defendant herein is one and 25/100 ($1.25) dollars per thousand cubic feet of gas delivered, with a minimum monthly charge of fifty (50) cents per meter, and basing its order on the foregoing findings of fact, It is hereby ordered that the Ontario-Upland Gas Company publish and file with this Commission a rate of one and 25/100 ($1.25) dollars per thousand cubic feet of gas to be delivered to its consumers within the city of Ontario, with a monthly minimum charge of fifty (50) cents per meter.

The foregoing opinion and order are hereby approved and ordered filed as the opinion and order of the Railroad Commission of the State of California.

Dated at San Francisco, California, this 3d day of January. 1914.